Day 2: Who’s Going To Be The Mouse – the Bull or the Bear?
Our medium-term models’ forecast for the S&P 500 Index for Friday stated: “Our models continue to indicate the S&P 500 Index as being stuck in an “indeterminate” state, with no clear bias in either direction, while within the broader 2840-2795 range for Friday.” (click here to read the full report/verify this claim).
The index, on Friday, closed at 2840.35 – just 0.35 away from our models’ indicated range! Regular readers are now used to witnessing this kind of performance from our models – predictions/ranges that actually played out in reality within under one point accuracy! And, they must have gotten used to our repeat cautions – worth repeating here again: Quantitative models do NOT always play out this accurately; do NOT engage in extreme positioning based on our (or anybody’s) models – always trade ONLY within the risk profile that is suitable to and comfortable for your individual financial situations and objectives.
Model Biases/Outlook:
The action of the market on Friday confirms the formation of the potential trap – to ensnare either the bulls or the bears – before the market breaks out in either direction. The close above the upper bound of 2840 at 2840.35 is rejected by the models as any genuine close (some readers again wondered if there is some market beast that is reading our forecasts and trying to hit exactly the numbers we indicate! We feel flattered, but please do not trade your hard earned money on that kind of assumption or hope).
Consequently, our models’ bias did not change much from their outlook for last Friday, except that they have tweaked the upper bound of the range to tune out the fake spike of the Friday’s close.
Our models continue to indicate the S&P 500 Index as being stuck in an “indeterminate” state, with no clear bias in either direction, while within the broader 2842-2795 range (upper range moved up by two full points).
If the index convincingly breaks out of this range, then the index is indicated to move in the direction of the breakout. A daily close above 2842 is needed for any bullish action to continue. A daily close below 2800 is needed for any bearish action to continue.
A Brief Trace Back of The Current Bias/Outlook
After 14 consecutive days of bearish bias, our models have negated the bearish bias on last Friday, 07/06/18 when it closed at 2759.82! Since then, our models have been consistently forecasting bullish strength and are yet to flash any concerns about any bears in sight, until Friday, 07/27.
After reiterating the bullish momentum for 21 consecutive days, our models now abandoned the bullish bias with the action on last Friday 07/27, but have NOT replaced it with bearish bias yet. We are in this “neither bullish, nor bearish” state since then, and repeat it for today, Monday, 08/06.
Trading Plans for MON, 08/06:
Medium-term/long-term Investors
Medium term models indicate an “indeterminate” state for the S&P 500 Index and are currently not biased in either direction but indicate a choppy, range-bound trading.
For Monday, the medium term models indicate NOT opening of any new trades. The models indicate waiting to see the close on Monday before determining any next trading opportunity.
Aggressive, Short-term, Intraday, or Professional Traders
Aggressive intraday models indicate using the 2846-2834 as the pivot band to place trades off of.
Above 2846, models would go long with tight trailing stop (about 6 points) and below 2834, models would go short with a tight trailing stop (about 6 points). To avoid getting caught up in whipsaws and overtrading, wait for a confirmation of the breakout of these levels on at least a 15/5/1 minute bar, depending on your trading style and risk profile.
(click here to read on the conceptual workings of a trailing-stop)
IMPORTANT RISK DISCLOSURES AND NOTICES – READ CAREFULLY:
(i) This article contains personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.
(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.
(iii) Risk Warning: Investing, trading in S&P 500 Index – spot, futures, or options or in any other synthetic form – or its component stocks carries inherent risk of loss. Trading in leveraged instruments such as futures carries much higher risk of significant losses and you may lose more than you invested in them. Carefully consider your individual financial situation and investment objectives before investing in any financial instruments. If you are not a professional trader, consult a professional investment advisor before making your investment decisions.
(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.
(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.
(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.